South Dakota farming interests defend tax breaks

Legislators get earful about keeping sales tax exemptions for agriculture

August 24, 2011|BY BOB MERCER | American News Correspondent

PIERRE — The Legislature’s sales tax review panel received clear warnings from agricultural producers throughout the state on Tuesday about the financial effects on South Dakota farmers, ranchers and agricultural equipment shops if state and local sales-tax exemptions are removed for fertilizer, seed, machinery parts and repairs.

John Hopper from Codington-Clark Equipment at Watertown said the business is built around parts and service, and that money turns over multiple times in the local economy. He said farmers and ranchers would be inclined to cross state borders for the same work on their equipment if they could save the costs of sales tax.

“Four percent (tax) on five, ten, twenty thousand dollars is a lot of money,” he said. “My point is, our dollars go out of state, they won’t come back again.”

Chet Edinger, who farms with his brother and four employees in the Mitchell area, said they spent about $770,000 on fertilizer this spring. He said paying 4 percent sales tax on fertilizer would have cost more than $30,000, and the tax on about $80,000 of equipment maintenance and repairs would add another $3,200.

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Together, they’re equal to approximately the pay for one employee, he said. Depending on the crop, the fertilizer tax alone would be the equivalent of raising his property taxes 14 to 46 percent per acre.

“If you don’t fertilize your crop, you basically get no crop,” Edinger told the committee. “This is a tax on a raw material to produce a crop we have to have.”

The committee spent the day taking testimony on 16 sets of sales-tax exemptions under consideration for possible repeal. By the end of the afternoon, none of the senators or representatives on the panel showed any interest in removing the exemptions for agriculture, advertising or any others on the list capable of producing any significant streams of new revenue.

Estimated revenue

The state Revenue Department estimates that removing the exemption for agricultural parts and repairs would generate about $2.5 million, while repealing the fertilizer and seed exemption would produce about $25 million.

The panel was asked to conduct the exemptions review as part of a continuing effort to bring state government’s budget back into balance. Facing a deficit estimated in the neighborhood of $125 million, the Legislature imposed general-fund cuts of 10 percent or more throughout state government for the 2012 budget that began July 1.

“I think everyone agrees there is a problem. Everyone agrees something needs to be done,” said Doug Sombke, a producer from the Conde area who is president for South Dakota Farmers Union.

Sombke took the opportunity to remind the legislators of his organization’s support for adding state personal and corporate income taxes. He said property taxes already hit family farms “immensely” and repealing the sales tax exemptions for agriculture would add to the burden.

“I think we get away from it by having an equal, fair tax,” Sombke said. “South Dakota Farmers Union has been a proponent of that for a long time.”

The panel members return today to proceed through the 16 one by one for an up or down vote on whether to recommend repeal to the full Legislature next year. But as the discussion wound up Tuesday, the outcomes today appeared obvious to at least some lawmakers.

Broader scope

House Democratic leader Bernie Hunhoff of Yankton suggested the committee broaden its scope beyond the specific direction given to it by the Legislature’s Executive Board and start looking at other ways to increase revenue.

He didn’t specifically call for any tax increases across the board, but said repealing exemptions doesn’t appear to be the solution in what he called “the hunt for dollars.”

“I think we’re starting to realize there aren’t a lot of dollars,” Hunhoff said about the exemptions review. “I think the dollars are not going to be there. We’re still going to be left with a budget crunch.”

The committee’s presiding chairman, Rep. Chuck Turbiville, R-Deadwood, sounded on the same wavelength as Hunhoff. “Bernie and I and the rest of you know where this is going to go,” Turbiville said.

Turbiville offered that the committee could meet a final time in September to come up with other revenue recommendations for the Legislature.

Caution urged

Several more-veteran Republicans warned against the panel getting outside the lines of the exemptions review.

The public doesn’t know the committee might be headed into other areas and hasn’t been given the opportunity to express itself on anything other than repealing exemptions, according to Sen. Larry Tidemann, R-Brookings.

“It’s not fair to the public to not have it (tax increases) out there at this time,” Tidemann said.

The refusal by voters in some school districts and communities to support opt-outs for higher local property taxes carries a message to the Legislature, said Sen. Tom Hansen, R-Huron.

“We dare not let our mission creep beyond what has been given to us,” Hansen said. “The people of South Dakota are not real anxious at any level to give government more money.”